荷美爾 (HRL) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, thank you for sending by.

Welcome to the Hormel Foods second-quarter earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(Operator Instructions).

This conference is being recorded today, May 23, 2012.

I would now like to turn the conference over to Kevin Jones, Director of Investor Relations.

Please go ahead, sir.

Good morning, everyone.

Welcome to the Hormel Foods conference call for the second quarter of fiscal 2012.

We released our results this morning before the market opened around 6.30 AM Eastern Time.

If you did not receive a copy of the release, you can find it on our website at www.HormelFoods.com under the investor section.

On our call today is Jeff Ettinger, Chairman of the Board, President and Chief Executive Officer; and Jody Feragen, Executive Vice President and Chief Financial Officer.

Jeff will provide a review of the operating results for the quarter, then Jody will provide detailed financial results.

The line will be open for questions following Jody's remarks.

An audio replay of this call will be available beginning at 10.30 AM Central Time, May 23, 2012.

The dial-in number is 800-406-7325 and the access code is 4535051.

It will also be posted to our website and archived for one year.

Before we get started with the results of the quarter, I need to reference the Safe Harbor statement.

Some of the comments made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those expressed in or implied by the statements we will be making.

Among the factors that may affect the operating results of the Company are fluctuations in the cost and availability of raw materials and market conditions for finished products.

Please refer to pages 28 through 35 in the Company's 10-Q for the quarter ended January 29, 2012, which was filed with the SEC on March 9, 2012.

It can be accessed on our website.

In order to assure that everyone has opportunity to ask their questions, please restrict yourself to one question with one follow-up.

Now I'll turn the call over to Jeff.

Thanks, Kevin, and good morning, everyone.

We are pleased to announce a record quarter for both earnings and sales.

Earnings for our second-quarter were $0.48 per share, up 20% from a year ago.

Four of five segments contributed to these results.

Sales increased 3% during the quarter and again were up in four out of five segments.

Total volume declined 2%, though much of the decline was due to reduced sales of commodity meats in both our Refrigerated Foods and Jennie-O Turkey Store segments.

This quarter once again demonstrates the benefit of our balanced model as the strong performances by our Jennie-O Turkey Store and All Other/International segments and year-over-year gains by Grocery Products and Specialty Foods more than made up for the softer results by our Refrigerated Foods segment.

I will now take you through each segment.

For Grocery Products, segment profit increased 10% on a 1% sales increase.

We again experienced softness in center of the store sales during Q2, but we did see some improvement in comparison with the first quarter.

Sales of our SPAM family of products grew during the quarter, aided by our fresh round of advertising featuring a new animated character, Sir Can-A-Lot.

It is noteworthy that this product line is celebrating its 75th anniversary this year and is still growing both in the US and abroad.

Sales of our Compleats microwave meals were soft, along with the category.

Our new product packaging and several new product varieties have still not been fully reflected in retail stores.

We will continue to advertise our Hormel brand, which features this product line, along with Hormel Natural Choice deli meats and Hormel pepperoni.

We are pleased with the growth of our MegaMex Foods product line, led by Wholly Guacamole refrigerated dip and Herdez Salsa.

We have also rolled out some new varieties of our Wholly refrigerated Salsas.

Our Refrigerated Foods segment reported a 25% decline in operating profit, due primarily to unfavorable pork operating margins.

The Company overall did benefit during the quarter from lower pork raw material costs for our value-added products, benefiting food service and meat products within Refrigerated Foods.

Sales for our Refrigerated Foods segment declined 1% in the quarter, reflecting lower sales of commodity pork.

The team reduced harvest levels during the quarter in order to limit our exposure to the unfavorable pork operating margins.

Sales of retail value-added products grew, led by Hormel Natural Choice deli meats, Hormel party trays, Hormel sliced pepperoni and our Di Lusso deli products.

Food service sales were also higher with solid gains from Hormel Natural Choice deli meats, CAFE H ethnic products and Hormel premium bacon.

Our Jennie-O Turkey Store segment had another outstanding quarter with segment operating profit up 50% on a sales increase of 7%, driven primarily by expanded sales of our retail value-added products.

Jennie-O Turkey Store's results also demonstrate efficiency gains throughout its farms, plants and supply chain.

Sales of our Jennie-O Turkey Store fresh tray pack items and turkey burgers were particularly strong as we continue to benefit from our Make The Switch advertising campaign late last year.

Our Specialty Foods segment operating profit increased 9% in the quarter as pricing actions taken earlier this year offset higher raw material costs.

Sales by our Specialty Foods segment grew 12% during the quarter, led by private label canned meats, ingredient sales and bulk and nutritional products.

In our All Other/International segment, operating profit grew 52% and sales increased 11%, due primarily to strong exports of fresh pork product and sales growth in our SPAM family of products.

We also saw improved results at our Purefoods-Hormel joint venture in the Philippines.

As we stated in our fourth-quarter conference call last year, we anticipated a more difficult operating environment in 2012 and for comparisons to be more challenging in the first half.

Our strong performance in Q2 brings us back to even in terms of earnings per share at the halfway point of the year.

Heading into the second half of the year, our Grocery Products, Specialty Foods and International segments are positioned well to contribute solid earnings growth.

In particular, we expect continued strong performance from our International team, which is benefiting from a positive export environment and from their branding and marketing efforts.

The run of gains at Jennie-O Turkey Stores has lasted longer than I'd originally anticipated, and the recent decline in commodity turkey values coupled with higher grain input may slow these gains going forward.

We do plan on running a new advertising campaign later this year to help drive the continued growth and sales of our value-added turkey products.

We look for our Refrigerated Foods segment to improve in the back half of the year through improved margins and sales of our value-added products, even as pork operating margins remain below typical levels.

Taking all of these significant factors into account, we are maintaining our fiscal 2012 earnings guidance range of $1.79 to $1.89 per share.

At this time, I will turn the call over to Jody Feragen to discuss the financial information relating to the second quarter.

Thank you, Jeff.

Good morning.

Earnings for the second quarter of fiscal 2012 totaled $127.9 million or $0.48 per share compared to $109.6 million or $0.40 per share a year ago.

Earnings through the first half of fiscal 2012 were $256.3 million or $0.95 per share compared to $258.4 million or $0.95 per share last year.

Dollar sales for the second quarter totaled $2.01 billion compared to $1.96 billion last year, a 3% increase.

For the first half, dollar sales increased 4% to $4.05 billion.

Volume for the second quarter was 1.2 billion pounds, down 2% from fiscal 2011.

Year to date, volume was 2.41 billion pounds, down 2% compared to last year.

Selling, general and administrative expenses in the second quarter were 7.4% of sales, down from 8.2% last year.

Year-to-date, selling, general and administrative expenses were 7.4% compared to 7.9% last year.

SG&A expenses are expected to be around 7.5% of sales for the remainder of the year.

Interest and investment income was $2.3 million for the second quarter compared to $2 million last year.

Year-to-date, interest and investment income was $3.9 million compared to $2.9 million a year ago.

Interest expense for the quarter was $3.3 million compared to $7.2 million last year.

For the first half of fiscal 2012, interest expense was $6.5 million compared to $13.8 million a year ago.

With the lower debt level and decreased interest rates, we expect interest expense to be approximately $12 million to $14 million for fiscal 2012.

Our effective tax rate in the second quarter was 33.5% versus 33.9% in fiscal 2011.

The year-to-date effective tax rate is 33.5% compared to 34.4% last year.

For fiscal 2012, we expect the effective tax rate to be between 33.5% and 34.5%.

The basic weighted average number of shares outstanding for the second quarter was 264 million.

The diluted weighted average number of shares outstanding for the second quarter was 269 million.

We repurchased 1.1 million shares of common stock during the second quarter, spending $31 million.

We have 1.9 million shares remaining to be purchased from the current authorization in place.

Total long-term debt at the end of the quarter was $250 million, unchanged from last year.

Depreciation and amortization for the quarter was $29 million compared to $31 million last year.

Year to date, depreciation and amortization totaled $59.7 million compared to $62.3 million a year ago.

We expect depreciation and amortization to be approximately $115 million in fiscal 2012.

Capital expenditures for the quarter totaled $28 million compared to $19 million last year.

For the first half, capital expenditures were $58 million compared to $36 million last year.

For fiscal 2012, we expect capital expenditures to be approximately $120 million to $130 million.

As we mentioned last quarter, we integrated the sales of Don Miguel Foods, part of our MegaMex Foods joint venture, starting with our fiscal third quarter.

Our retail sales force has responsibility for representing this expanded Mexican foods portfolio, and we will report these sales in our Grocery Products segment.

Profits will continue to be accounted for through equity and earnings in the Grocery Products segment.

As a result, added sales from the Don Miguel integration for the second half of 2012 are estimated to be $80 million to $90 million.

At this time I will turn the call over to the operator for the question-and-answer portion of the call.

Operator?

(Operator Instructions) Farha Aslam, Stevens.

Good morning.

Congratulations on a great quarter.

Could you just provide us some more color around the turkey business?

In terms of for the full year, what do you think volumes and kind of sales and operating profits will do for that division?

Volume will probably continue to trend slightly down because it's based primarily on the total number of turkeys we're bringing into the operation, and we said we are running a tight operation this year on that basis.

We would expect net sales to be up somewhat as pricing -- as we've had to take pricing the past, and that will continue to roll through in the second half of the year.

In terms of earnings, the unit obviously has done very well thus far this year.

They will be facing more pressure in the form of increased grain costs in the second half, and the commodity markets have gone down somewhat in terms of their commodity meat sales.

So those will pressure their ability to continue to deliver the very large gains that we've seen thus far.

But overall, we think that business is positioned well, and with ad campaign we mentioned and continued spending against the value-added line, we still have a positive outlook for Jennie-O for the remainder of the year.

So you expect profits to be up year-over-year in that division by 15, would you say?

Well, clearly, for the year, based on the strong start, they're going to be up.

We're not going to give a specific segment-by-segment amount in terms of exactly what we're looking at for Jennie-O.

But we talked early in the conference call at the end of last year about them holding their own.

They've done more than hold their own thus far.

They may have enough momentum to be able to continue to generate positive gains, but the floor we would see would be able to at least hold their own with last year.

Okay, that's helpful.

And then just a follow-up, Jody.

On the corporate expense, it's kind of down almost half year-over-year.

I was wondering what drove that and if you could just give us some color on what it's going to be for the full year as well as what interest expense is for the full year.

I gave that in -- as part of the script, so let me pull back to make sure I state it correctly.

But our general corporate expenses were positively impacted by our insurance experience, if you will.

Our medical and pension accounts ended up being more positive this year versus last year, when we had some unfavorable trends.

For your other question -- and for the full year we expect it to be more around the 7.5% of net sales for total SG&A.

And then interest expense -- we're looking at the $12 million to $14 million.

Really we're down in the level of debt that we have and the interest rate is much lower on the bond that is outstanding.

Okay, great, thank you very much.

Christine McCracken, Cleveland Research.

Good morning, nice quarter.

I just wanted to dig a little bit into your -- what appears to be export strength in your All Other segment.

It does seem like things have slowed a little there.

I'm just curious if you could detail or provide any color around pockets of strength.

I think you mentioned your Philippines joint venture.

But specifically, if you have any other color around that segment that could help us understand what you're looking for over the balance of the year.

Well, general exports, the one area we've seen a little bit of slowdown would be Korea, given that last year they had foot and mouth issues and their herd has come back to about 90% of where it was.

Even with that, our numbers year-over-year for the quarter were pretty favorable.

We were down slightly in Korea.

We more than made up for that with the rest of the Asian markets when it comes to fresh pork.

And then in terms of some of our partnerships, as you correctly referenced, the San Miguel Philippine partnership has been very favorable for the pork.

We continue to improve our results in China, albeit it's still a not a large contributor to the bottom line, but it's heading in the right direction.

So we're comfortable with our Asia focus and it's a combination of pork items, both fresh and processed.

And then SPAM is a very important product in the Philippines, in Korea, Okinawa.

We're working to make it more important in Japan through our ad campaign there, and we're back in China working on trying to build the marketplace in China for SPAM as well.

Just as follow-up, when I think about this business going forward, prices have softened a little, but it seems like your volumes probably see a pickup as a result.

Long-term, is this a business that you think you can continue to grow at this pace?

Obviously, it's hard to make long-term estimates based on what we're seeing globally.

But it seems like pork is still a popular item around the world.

Is that something you expect to continue?

Your question focuses on International, I'm assuming, still?

Yes, yes.

Yes, our expectation for International is that it would continue to grow at rates that are higher than our Company-wide goals, which are the 5% revenue and 10% earnings growth.

They've certainly been delivering on that strongly the last couple of years, and based on the various branded franchises we have in place in different markets right now, we look at that very favorably.

All right, thanks.

Diane Geissler, CLSA.

I have a question.

How did the quarter rate versus what your internal budgeting had been looking for coming into it?

And then, to the extent that it was either ahead of plan or on plan, why the conservatism on the full-year outlook?

Certainly, you were still significantly higher than consensus, so maybe we were just all wrong versus your budget.

But I'm just trying to figure out if there's something -- a particular headwind that you're concerned about.

Is it grain prices in turkey, or pork cut-out?

Or why keep the guidance where it is?

We talked at the beginning of the year about how we expected the first half of the year to be difficult and that we would see most of the gains; we provided a guidance range that clearly was going to be hopefully our 27th up year in our last 30 years.

When all's said and done for the half, we are at even.

We probably did a little bit better in the second quarter than I originally anticipated and a little bit worse in the first quarter with Refrigerated experiencing a lot more significant challenges with the processing margin.

You identified a couple of things that are certainly washouts going forward in terms of the pork operating margins are still poor right now.

The center of store volumes, although improving sequentially, are still not to where we'd like them to be.

But we feel we can more than offset those with the positive momentum going on in Specialty with our other grocery items, with our food service and meat products, with Jennie-O's branded items.

So as we sit here today, we net out that to hit our guidance range, we will have to have continued up quarters in the high-single-digits to low-double-digit range, and we think that's probably a reasonable range right now for the remainder of the year.

Okay.

Has the pork operating margin improved since the start of the third quarter?

It's bounced around.

It improved some initially and the very current picture is not very pretty right now.

So would you say there's really no discernible trend yet on pork cut-out?

I would agree with that.

Okay, all right, thank you.

Tim Ramey, D.A. Davidson.

Good morning, thanks, and thanks, Jeff.

Just to take another cut at the Jennie-O Turkey Store question, which obviously these results have just been stunningly good -- I think you mentioned in your prepared remarks you thought the gains have been strong, and the gains would slow.

If that's -- I just want to verify that that's exactly what you mean, rather than things will start to have tough comps or down comps.

If you continue to think that we're going to have up numbers in Jennie-O Turkey Store, at least I for one have been way too bearish on that.

Well, through the half, their segment profit is up 22%.

Our best look right now would say that they should not be continuing at that kind of an increased rate for the remainder of the year.

However, we do believe at this point that they should still be able to generate a positive second-half year-over-year and it will be somewhere between that as an up end and flat as a down end.

And I guess just thinking about it, it seems early to be starting to think about fiscal 2013.

But at some point, these numbers become comps.

We thought they were going to be difficult comps in 2012, and you've been able to continue to generate great returns there.

Has your thinking changed about -- should we be thinking about Jennie-O Turkey Store as a 19%, 20% EBIT margin kind of business now?

I think I would agree that that's probably above the high end of where we think a run rate would be on an annualized basis.

They ended last year at 14%.

They'll clearly do a little bit better than that this year.

Obviously, we've not done any budgeting yet for 2013, but looking at the crystal ball, as you are, clearly their comps will be challenging again for next year.

I would say, at least where we sit here today, that, frankly, Refrigerated Foods comps will be not as challenging, and so that could be an area where we would make that up.

And then, ultimately, it's the same old story; it's that what are the value-added franchises within all these business units doing?

And as long as we can continue to drive growth there, we should be in good shape long-term.

Jody, did you say anything about your -- if you did, I missed it -- the length of your corn forward purchase commitment at this point, your general view on do we want to be long or short?

You know, our traditional hedging policy is 25% to 75%.

Last year, 2011, we were probably on the high side of that range.

This year we're probably more on the middle side of that range, and obviously we look for input from the business units, to secure positions that they think they can live with in the marketplace.

So we do have some for 2012 and some for 2013.

Thanks a lot.

Lindsay Drucker Mann, Goldman Sachs.

I just wanted to talk a little more about Jennie-O.

You had pretty fantastic flow-through of the incremental sales to your margins, something like 100% incremental margins.

And you mentioned a couple of buckets of drivers of that, including shift to value-add and some cost efficiency programs.

Could you go a little bit deeper into kind of what drove what proportion of the incremental margin in the quarter?

I guess the best I can do with that on the value-added side was that kind our -- kind of the star performer in terms of being able to continue to generate not only net sales growth but volume growth was the retail area.

That retail fresh tray pack franchise that, frankly, we acquired back in 2001 from The Turkey Store and that our team has done a great job growing ever since is very robust right now.

It's been well supported by the ad campaigns that we've ran the last few years and that we are intending to run again this fall.

And so that's been a key driver on the value-added side.

That being said, both the food service and deli sides of the business have really been holding their own in a challenging environment where price often has to be pushed.

But they've really done a nice job of maintaining volume there.

In terms of efficiencies, they really are kind of across the board.

That's by far the most vertical part of our business, all the way from breeder/hatchery operations to feed mills to owning our own barns, in many cases, and also partnering with family farms in the area in terms of grow-out.

We've been able to really push improvement throughout that aspect of the supply chain, through our plant operations and through our logistics area, and those are all paying off for Jennie-O in terms of offsetting a lot of those other grain input increases.

Would you normally expect the incremental volume in the retail piece or any of the buckets of the end markets to drive full flow-through to profit?

Or shouldn't there be some sort of variable margin associated with the typical sales growth story?

Not having the benefit of the model you're running, I will say that in general our philosophy in the Company is not only convert commodity to value-add, but to move value-add up a value chain that ultimately does widen the margin.

As we innovate with new products, we look for higher returns on innovative new items than maybe a category that has a lot of competition and has been around a while.

So in the long run we do think the flow-through ought to be quite good.

I don't know whether dollar for dollar is a realistic expectation.

Okay, can you just give us a sense of what the breakout of the mix is now of value-added versus the commodity meat within the division?

In Jennie-O?

Yes.

On a dollar sales basis, Jennie-O is close to 80% value-added.

On a tonnage basis -- now, assuming we internally frankly count the whole bird part as more of a commodity aspect of the business.

It is branded, but it behaves more on markets and so forth.

So assuming that volume is in the commodity volumes, then the volumes are probably closer to 60% value-added, and 40% in the other categories.

That's very helpful.

And then just lastly, I know that this is a much smaller piece of your overall business, but can you comment at all on what you think has been driving some of the pressure in the fresh pork business?

Some industry participants have talked about pink slime as being -- having some negative spillover effect, perhaps some change in exports, perhaps some change in some of the competitive activity.

Any perspective you can add as to why we are seeing the magnitude of margin pressure we are in this business would be helpful.

So I don't know if you're talking about the pork operating margins.

Yes.

But generally what we've seen is real softness in the domestic market for pork products, some speculation that it's retailers holding the price and consumers not buying into that franchise.

And then for the price of hogs, I'm still mystified as to why they continue to drive up in this type of an environment.

Okay, thanks.

Rohan Patkar, KeyBanc Capital Markets.

This is Akshay Jagdale, actually.

Congratulations, first of all, on a good quarter.

And my question was on the pork processing side, actually, just what's your impression of what happened that resulted in lower packer margins?

And just a follow-up to that, how are you thinking about those factors as we move forward?

Well, we certainly did not expect that for the second quarter the pork operating margins would be negative.

And as I indicated before, it seems to be a combination of softer domestic demand on the cut-out side and more demand for the hogs that run up prices on that side of the business.

Going forward, our look for the year would be that those pork operating margins would remain below the levels of last year but improving in the fall as we get into a traditionally more robust season for production on the hog side.

So, just to be clear, so the improvement in margins will be a result of better domestic demand?

Is that sort of the seasonal factor that you apply?

My seasonal factor was related to the production of hogs, so more hogs on the ground in the fall, as we traditionally see, but still thinking that pork operating margins will be below last year's levels.

But you are assuming that demand will get better?

Probably expecting the cut-outs to be below last year as well.

Okay, great, I'll pass it along, thank you.

Ken Zaslow, BMO Capital Markets.

In terms of the center of the store, can you talk about what you think the drivers have been to why -- you guys are not the only packaged food company to actually talk about the center of store being a little sluggish.

Can you talk about what you think the macro environment is that's keeping it from happening, from accelerating?

And then what are you guys doing to compensate for that and to drive consumers back to the center of the store?

Okay, yes, everyone kind of has theories on it.

We certainly believe there has been some effect related to pricing, that a lot of manufacturers have been confronted with steep increases in raw materials in those types of products that go center of the store and that have therefore had to push pricing, and we are no exception to that.

So at some point, if you take a couple rounds of price increases, if there's at least some short-term resistance to those levels, those could be being reflected.

Tied in with that would be we are seeing a change in terms of promotional behavior in response, where say the kind of deal that many retailers would do 10 for 10s, 10 cans of something for $10, etc., that those are just not receiving the response they used to.

At least, that's been our experience.

I think when you do have a cash-strapped consumer, they still like the items but they're just not willing to load in the pantry at that kind of a level, so that creates year-over-year comp challenges.

We definitely feel there has at least been some weather effect.

I would concede that that only makes sense with items that seem to be more -- like, in our case canned chili; we've had a not so great half.

This year's winter has been very benign, the year before's was very cold, a lot of weekends lost to the food service trade where people ate at home.

In terms of what we are doing to combat it, a lot of it is just that day-to-day work you do through your sales organization with the retailers.

But on top of that, advertising is clearly very important.

We're going to be advertising a really wide array of our products during the second half of the year.

So on the Hormel side, the Compleats will continue to have a campaign as well as Natural Choice.

We'll be advertising SPAM, and SPAM seems to be responding well to it.

We even saw that during the second quarter.

Jennie-O Turkey Store will have a new campaign, and then our MegaMex venture has three different brands that they advertise.

MegaMex is still generating positive volume even in this environment.

So my one follow-up is, why would marketing ebb and flow?

Why is it not more consistent throughout a year?

I guess that's my follow-up.

Okay, even though I mentioned to you the second half programs we're running, these have all been set well in advance.

When we kind of set a program, it depends on seasonality of products.

It depends -- in the case of the Hormel brand, we try to do it on a complementary basis so that maybe in the winter we're running pepperoni more.

That's more for kind of cooking up and heating up at home or having snacks.

Natural Choice, for example, is the third Hormel brand that we're advertising.

That's sandwich meat, mostly, and that's more of a summer item.

So I mean, we'd love to have the kind of budget where we'd be on all year, and someday maybe we'll work our way up to that.

But using it in a prudent fashion, we lay out an advertising calendar well in advance, and there is some seasonality to that.

Great, I appreciate it.

Robert Moskow, Credit Suisse.

I guess my question is that you've seen in the Refrigerated Foods business a normalization of margins back to your historical range of 5% to 7%, even at the low end.

And then you have the turkey business, which is really elevated here.

I know you're saying that that's not sustainable, but you're still saying that it is going to be well above what you had thought was a normalized margin of -- I think it was like 9% to 10%.

So what is it about the turkey business today that you think is different about the Refrigerated business so that we can hold on to margins maybe in the teens instead of going all the way back down to 9% to 10%?

On the Refrigerated side, I would argue that we are on the low end of where we belong in that area, and that we need to, through better macro conditions but, more importantly, through value-added sales in food service and meat products, eventually get our way up to that higher end of that range.

On the turkey side, internally our expectation has to be a little bit higher in terms of returns to that business because of the verticality.

We have a lot more capital invested at Jennie-O, and that's what you're hopefully getting for that investment, is better overall returns.

But, clearly, at least for now we seem to have hit on a good formula of driving efficiencies in the operation, most of which I don't expect to just vanish.

These are systemic changes that they've made that should be positive going forward.

And then supporting branded differentiated items through advertising and other programs with the retailer, that should continue to allow those franchises to grow.

After these couple years, I think as we head into 2013, we'll probably assess, okay, is there a new guidance level range for where we would expect Jennie-O to be?

But we are still kind of in the middle of this year now, so I don't really have that for you yet.

Okay, but the pieces you're putting together here on Jennie-O that would justify a higher normalized margin is the level of investments that you've made in terms of creating value-added.

That's different from five years ago.

Is it also maybe just the consumer is still in the early stages of per capita consumption on value-added turkey and that's changed versus five years ago?

Am I in the right direction?

Well, those are important.

The export picture is a lot more favorable today and has steadily been that way, increasing over the last few years, so that definitely provides some added value in the system where you're still -- a lot of the dark meat is going outside the United States, so that's a positive.

The more years that go by from the acquisition, I know it's now been 10, but there's times that you find opportunities to consolidate your facilities, to utilize your raw material better, to purchase better and so forth.

And those have been kind of rolling forward as well, through their system.

Okay, thanks Jeff.

(Operator Instructions) Eric Larson, C.L. King & Associates.

A couple questions, the first is probably for Jody.

Jody, just for clarification, the first half of the current fiscal year, MegaMex was accounted for only as an equity -- the only P&L item was equity earnings.

Is that correct?

Well, it's a little more complicated than that.

MegaMex, the core products that were in the original joint venture, have always been sold by our consumer product sales force.

So those sales have been included in Grocery Products.

So that would be the Herdez items, the La Vic items, the Chi-Chi items, and I know I'm forgetting something.

As MegaMex acquired additional businesses, Don Miguel and Fresherized Foods, some of the products that Jeff talked about, they were included only in equity earnings because they were being sold outside the Hormel CPS organization.

We have now integrated Don Miguel to take advantage of some synergies, particularly our sales force.

So those Don Miguel sales starting in the third quarter and going forward will show up on the Grocery Products top line, but not -- but still be accounted for in equity and earnings.

Fresherized Foods at some point in time -- we'll look to see if that fits within our consumer product sales organization, to see if there's anything there.

But right now, it's Don Miguel and the traditional MegaMex items.

Okay, what were the Don Miguel sales for the first half?

I would assume you're not going to restate any of that, so you'll have that positive impact on your top line in Grocery for your first half next year.

So what was roughly your sales for the first half in that business, Don Miguel?

I would tell you that the $80 million to $90 million range that I gave you for the back half is about what they delivered in the second half.

Okay, that's fair, thank you.

I thought maybe you had maybe mentioned that and I may have missed it.

The next question is -- when you look at your commodity cost outlook for turkeys, obviously in the very short run, if you are short, you're getting penalized because of the near-term moves both in corn and soybeans.

That will probably change for corn going forward, soybeans is probably going to be higher.

But I guess the real question is, what is the mix of those two commodities that you feed your turkeys?

Is it 50-50?

Is it 40% soybean meal, 60% corn?

What is roughly the mix of feeds to your livestock?

Well, it varies by season and what we're trying to accomplish.

But to just give you a rough estimate, it would be like two-thirds/one-third, corn to soy meal.

Okay, good, thanks.

Ann Gurkin, Davenport.

Congratulations on a good quarter.

I wanted to ask a question on Jennie-O.

How has the sell-in been for the Thanksgiving holiday?

Is that meeting expectations?

Yes, we're in good shape with it.

It does cause volume changes in our sales numbers, because it's really -- we make it up to customer as to when they take delivery.

And this year, some of them are taking delivery a little later than they did last year, so we actually have a little more inventory than we have in the past, but it's committed so we're in good shape for that.

Okay, great, and then, Jody, continue to see cash build, which is a good thing.

Any updates on potential acquisitions or use of cash or anything there you could help us with?

I don't really have an update, but I have said in the past, obviously, we look to invest in our businesses and continue to look at strategic opportunities in the acquisition area, anything that is a market leader, something that provides scale, something that's accretive from a margin and sales standpoint.

We have made a commitment to higher capital levels, CapEx spending this year, with some expansion of facilities, actually adding some more capacity in our value-added areas.

We've made a commitment to our shareholders on dividends and we've continued to perform very well in that area.

And then opportunistically looking at share repurchase.

I'd just add that we're very happy with the couple Mexican acquisitions we have made in the last couple years.

So about this time last year we talked about Wholly Guacamole; it's just been a great addition to the franchise.

And Don Miguel continues to grow nicely also for MegaMex.

Great, thank you very much.

(Operator Instructions).

There are no further questions at this time.

I'll turn it back for any closing remarks.

Very good.

Thank you, everyone, for listening in on our call.

Feel free to follow up with me with any additional questions, Kevin Jones.

And have a great day.

Ladies and gentlemen, this concludes the Hormel Foods second-quarter earnings conference call.

ACT would like to thank you for your participation.

You may now disconnect.